What is international commercial arbitration?

Business
BY JACOB MUTEVEDZI International commercial arbitration is an alternative means of settling disputes between private parties emanating from commercial transactions conducted across national boundaries. Article 1 (3) of the UNICITRAL Model Law states that arbitration is international if: – “(a) the parties to an arbitration agreement have, at the time of the conclusion of that […]

BY JACOB MUTEVEDZI

International commercial arbitration is an alternative means of settling disputes between private parties emanating from commercial transactions conducted across national boundaries. Article 1 (3) of the UNICITRAL Model Law states that arbitration is international if: –

“(a) the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different states; or – (b) one of the following places is situated outside the state in which the parties have their places of business: • (i) the place of arbitration if determined in, or pursuant to, the arbitration agreement; • (ii) any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected; or – (c) the parties have expressly agreed that the subject matter of the arbitration agreement relates to more than one country.”

Relationships of a commercial nature are defined in the footnotes to Article 1 (1) of the UNICITRAL Model Law to include the following: “any trade transaction for the supply or exchange of goods or services; distribution agreement; commercial representation or agency; factoring; leasing; construction of works; consulting; engineering; licensing; investment; financing; banking; insurance; exploitation agreement or concession; joint venture and other forms of industrial or business cooperation; carriage of goods or passengers by air, sea, rail or road.”

In Zimbabwe, the conduct of international arbitration is governed by the Arbitration Act [Chapter 7:15] which is based on the Model Law. The Arbitration Act provides a statutory framework for the conduct of arbitration proceedings and for the enforcement of arbitral agreements and awards.

International commercial arbitration has certain favourable characteristics which differentiate it from court litigation. According to Mistelis and Kroll, in Comparative International Commercial Arbitration (2003), the four fundamental features of international arbitration are that: (1) it is an alternative to national courts, (2) it is a private method for dispute settlement, (3) it is controlled by the parties and (4) it is a final and binding determination of parties’ rights and obligations. These characteristics are explored in detail below.

It is an alternative dispute resolution mechanism

Most disputes are resolved in the courts of law. However, formal litigation is bedevilled by a plethora of challenges, which include, among others, exorbitant costs and delays. These numerous problems associated with court litigation, coupled with burgeoning globalization, have made arbitration very attractive indeed. There is a general perception that arbitration is a more flexible and swifter dispute resolution method than litigation. International commercial arbitration, therefore, does not constitute part of the national court system; rather, it is a quasi-judicial institution and a special supplementary mechanism which derives its power from an arbitration agreement. The arbitration agreement removes the dispute from the jurisdiction of national courts and confers exclusive jurisdiction on the arbitral tribunal.

It is private

Frequently, parties are anxious about the lack of confidentiality in litigation because court records are accessible to the public. The discovery procedures in litigation enjoin parties to disclose extremely sensitive information like trade secrets and other proprietary information thus potentially jeopardising a party’s business prospects. Conversely, arbitration allows parties to regulate issues of confidentiality through agreements and protective orders issued by arbitrators.

Therefore, parties to international business transactions are able to shield their commercial affairs from the prying eyes of the general public. Thus where the subject-matter of a transaction is sensitive, both corporations and individuals can protect their trade secrets. Arbitration is a private dispute resolution mechanism which guarantees the confidentiality which most business people pine for. Proceedings are contacted far from the madding crowd and there is no danger of your dirty linen getting aired in public.

It is controlled by the parties

One of the most attractive features of international commercial arbitration is that it is controlled by the parties. The parties are free to determine the form, structure, system and other essential details of the arbitration. Parties actually enjoy the luxury of customising their dispute resolution process. For example, they can choose the applicable law, procedure, and language of the proceedings.

The parties’ consent provides the basis for the jurisdiction of the arbitrators to decide the dispute. The parties’ consent also governs the arbitral tribunal’s powers because an arbitrator can only decide issues within the scope of the parties’ agreement.  Arbitrators are also bound to apply rules, procedures, and laws chosen by the parties.

It is final and binding

When parties conclude an arbitration agreement, they agree that the arbitral tribunal shall resolve their dispute and whatever decision rendered by the tribunal shall be final and binding. Not only do the parties undertake that arbitration will be their method of dispute resolution, they also agree to accept and give effect to the arbitral award.

Although occasional opportunities to appeal exist in some jurisdictions, generally, a party cannot challenge an award unless if there was some defect in the process. In most jurisdictions, the grounds for setting aside an award are quite narrow. Such grounds include, among others, procedural defects and the arbitrators exceeding their powers by deciding an issue that is not before them.

In Zimbabwe, the grounds for setting aside an arbitral award are enumerated in Article 34 of the Model law. Once an award is made, the losing party may voluntarily comply with the terms of the award, failing which the successful party is entitled to have the award recognised and enforced by a court in a jurisdiction where the losing party has executable assets.

Conclusion

Arbitration offers a broad array of advantages. It saves time and costs. If you choose arbitration you actually avoid litigating in a foreign court where the odds might be stacked against you.

Further, the procedure can actually be tailored to suit the whims of the parties. For example, parties can elect the applicable law, procedure, and language of the proceedings. Additionally, arbitration offers neutrality in relation to the law, language and institutional culture of the parties.

  • Jacob Mutevedzi is a commercial lawyer and arbitration practitioner. He can be contacted on [email protected], on Twitter @jmutevedzi_ADR and on +263775987784. He writes in his personal capacity.